BRICS: From 'odd grouping' to political alliance?

Stepped-up sanctions against Russia could imperil the future economic growth of other BRICS nations, and that’s leading to active debate about the future role that the BRICS should play in the international political and economic system.

A multiple handshake at the 2014 BRICS Summit. Photo: TASS

With the U.S. and the EU threatening to toughen sanctions on the Kremlin yet again as a result of escalating violence in Eastern Ukraine, there is increasing concern that financial fallout from the Ukraine crisis could impact the future economic growth of the BRICS nations. It’s not only the potential for a disruption in Russia’s growing trade relationship with these nations, it’s also the very real risk that international investors may decide to invest their money elsewhere in less risky markets.

The rapid economic growth of the BRICS now appears to be slowing, and that’s raising concerns about how to maintain the development of the BRICS. According to some forecasts, the respective emerging markets of the BRICS (Brazil, Russia, India, China, South Africa) will likely grow at their slowest pace in six years in 2015. This is not surprising given that the growth rates of all of the BRICS have slowed in the current decade by more than 2 percent each, with the exception of South Africa.

The International Monetary Fund (IMF) considers this slowdown to reflect primarily a weaker international demand for exports from the developing economies. As well, it is the result of government actions that put a restraint on growth domestically. Another factor that should also be considered is the increase of interest rates in the West that will make investing in the emerging economies less attractive.

Combined with the impact of sanctions, these conditions might pose serious challenges for trade dynamics within the bloc. As Vladimir Davydov, director of the Russian Academy of Sciences (RAS) Institute of Latin America, points out, sanctions will not only hamper Russia’s economy but also hit the BRICS. He sees some evidence that the Russian capital markets are shrinking, thus limiting the ability to import from other markets, including the BRICS.

Christopher Hartwell, a research fellow at the Skolkovo Institute for Emerging Market Studies and the president of CASE (Center for Social and Economic Research), also notes the economic relationship between Russia and the BRICS.

“Russia’s interaction with the BRICS countries, as well as the rest of the world, will be suffering simply because Russia is suffering,” he told Russia Direct.

In addition, Hartwell is skeptical about the BRICS. He sees it as an “odd grouping with no real reason for existence.”

“Unlike the Eurasian Union, which at least is a trade grouping based on existing trade patterns and contiguous borders, the BRICS are really an acronym in search of a purpose,” he said.

Davydov, however, remains hopeful that this difficult situation will accelerate the search for new trade and financing mechanisms between the partners and force them to boost their work on projects that were already agreed upon but didn’t receive proper attention.

The question of trade, therefore, will remain one of the most pressing issues on the BRICS agenda and will be among other economic topics discussed during the upcoming 2015 summit in Ufa. The summit will receive a lot of attention, as it will be held jointly with the meeting of Shanghai Security Organization. This event will most likely bring closer India’s and Pakistan’s accession into the organization.

The upcoming summit will also be an important step in the establishment of the New Development Bank (NDB), with initial capital of $50 billion, and the Contingent Reserve Arrangement (CRA), worth $100 billion. By the time of the summit, the five countries will be ready to announce the names of the president and the vice president of the NDB as well as provide details on the procedural rules and operational guidelines of the Governing Council and the Standing Committee of the CRA. What is already settled now is that the bank’s headquarters will be in Shanghai and the rotating presidency will first go to India.

Even though the new financial institutions aim to provide necessary resources to emerging economies and increase their bargaining power on the world stage, it does not necessarily mean that they will pose a challenge to the Western-style organizations (the IMF, WTO, World Bank). During a videoconference between Moscow and Delhi just a few days before U.S. President Barack Obama’s visit to Delhi, Russian and Indian experts discussed how the bloc should act in the changing geopolitical situation in order to avoid direct confrontation with the West.

This urgent question was voiced during the videoconference by the Vice President of the Observer Research Foundation (India), Nandan Unnikrishnan.

“The world is going through a geopolitical crisis and this is one of the main issues that the BRICS will have to confront,” he said. “However, coming up with a shared strategy for the organization will be difficult to do, due to the fact that all BRICS members do not want to lose their relationship with the U.S. Therefore, the success of the BRICS will depend on how the bloc will present itself on the world stage – a bloc that is against something or not? We need to address it at the next summit.“

What is evident at the moment is that it is highly unlikely that the bloc will unite against the West. Some call it too risky and shortsighted given a great number of international issues that can only be addressed jointly. The Ambassador Extraordinary and Plenipotentiary, Deputy Director of the Russian APEC Study Center Gleb Ivashentsov shares this view, stressing the importance of multilateral dialogue for the global decision-making process.

The current crisis in Russia-U.S. relations will most likely pass, according to its historically cyclical nature, but the issues facing global society, from economic to societal, will last. Even though the perceptions of these problems sometimes differ, including within the BRICS (which is inevitable given the differences in historic and cultural background), it is necessary to focus on commonalities, experts agreed.

There was also a general consensus at the conference that the five states need to act together on all international decision-making platforms and push for the global reform of the major organizations where the emerging economies are underrepresented. The speakers pointed out that the revision of mechanisms of the major international organizations, particularly the UN, is highly necessary given that it no longer meets the interests of the main global actors.

The Professor of the Diplomatic Academy of the Ministry of Foreign Affairs of the Russian Federation, Andrei Volodin, argued the reform and the enlargement of the UN Security Council is now just a matter of time. “If the reform is not carried out, the future of the organization will be under threat. All its work will be hampered,” he believes.

To conclude, the potential of BRICS to transform from an “odd grouping” into a political alliance able to project its members’ interest on a world stage will depend on whether the bloc will be able to come up with a balanced approach to achieve its goals, not challenging, but instead reforming, the world to make it fairer.

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Ksenia Zubacheva is a Managing Editor at Russia Direct. Previously she worked as an editor at The Voice of Russia. Ksenia holds a BA (Honors) in Oriental and African Studies from the Institute of Practical Oriental Studies (Moscow) and an MSc in International Relations from the University of Bristol.